Block 4 Lecture 3
Block 4 Lecture 3
Block 4 Lecture 3
com
AAA SMART COURSE 2021-22
KASHIF KAMRAN –FCCA
Lecture 19
(BLOCK 4 LECTURE 3)
Objective: Forensic audit & Audit of performance info
Forensic Audit
Examiner mind-set and the scan of past paper
Dec 11 Q4 A/B Dec 12 Q4C Jun 13 Q2b Jun 15 SD2019
Ethical and 6 marks
professional issues
Matters Accepting a X Theft/ insurance X Before accepting
potential claim an engagement –
engagement 3 marks 8 marks
6 marks
Procedures X 4 marks 6 marks 4 marks 6 marks
Step in planning 3 marks
Deficiencies/ 6 marks
recommendation
Fraud discovery- 5 marks
management and
auditor difficulties
1. Procedures
2. Matters
Yes, why?
o Because presenting a client in a court proceeding is promoting the client business interest
o In forensic investigation, advocacy is permissible because its embedded part of engagement
Summary: Acceptance
1. Ethical issues- (Existing audit client)- self review/ advocacy/ management threat
2. High fees – versus special nature of work
3. Senior members in the team
Past papers
2011- Dec Q4 a and b
(A)- Ethical and professional issues (Assignment)
Explain the matters that should be discussed in the meeting with Jack Privet in respect of planning the
investigation into the alleged fraudulent activity.6 marks
Para 3:
I am very worried about the scale of this fraud, as travel and client entertainment is one of our biggest expenses. All of
the alleged fraudsters have been suspended pending an investigation, which I would like your firm to conduct. We will
prosecute these employees to attempt to recoup our losses if evidence shows that a fraud has indeed occurred, so your
firm would need to provide an expert witness in the event of a court case. Can we meet tomorrow to discuss this
potential assignment?’
June 13 Q2b
Required:
In respect of the theft and the associated insurance claim:
(i) Identify and explain the matters to be considered (3m), and the steps to be taken in planning (3m) the forensic
accounting service; and 6 marks
(ii) Recommend the procedures to be performed in determining the amount of the claim. 6m= 6procedures
Note: The total marks will be split equally between each part. (12 marks)
Answer
Matters – 3 m
Steps – 3 m
Procedures – 6 m
The audit committee of the Group has contacted Kennel & Co to discuss an incident that took place on 1 June 2013. On that
date, there was a burglary at the Group’s warehouse where inventory is stored prior to despatch to customers. CCTV filmed
the thieves loading a lorry belonging to the Group with boxes containing finished goods. The last inventory count took place
on 30 April 2013.
The Group has insurance cover in place and Kennel & Co’s forensic accounting department has been asked to provide a
forensic accounting service to determine the amount to be claimed in respect of the burglary. The insurance covers the cost
of assets lost as a result of thefts.
It is thought that the amount of the claim will be immaterial to the Group’s financial statements, and there is no ethical
threat in Kennel & Co’s forensic accounting department providing the forensic accounting service.
In respect of the theft and the associated insurance claim Identify and explain the matters to be considered (3m)
Matter
-The audit firm should consider the weaknesses in the internal control system at the warehouse which resulted in the theft
on 1st June. The weaknesses will help audit firm to exactly identify the loopholes which will help them with their
investigation (1)
-The audit firm should discuss with audit committee whether any suspects have been identified or whether any initial
investigation has been carried out to identify the likely suspect. (1)
Q: the steps to be taken in planning (3m) the forensic accounting service – 3 mark
Kennel & Co should carefully plan the forensic investigation of the theft from the warehouse by carefully considering
planning matters:
-should carefully understand the scope of engagement in terms of relevant laws and regulation and the size of warehouse
and nature of inventory to perform an efficient investigation
-should develop a proper timetable to perform the engagement in line with the deadline given by the audit committee
-should consider developing a proper audit team with experienced team members to perform investigation as
investigation requires more senior team members
Student note: step in planning = block 3 planning= scope, timing, direction and resources
Brainstorming
Insurance claim - The insurance covers the cost of assets lost as a result of thefts.
xxx
Procedures-
1. Agree the cost of lorry stolen to the purchase invoice or to the fixed asset register to confirm the cost. (1)
2. Discuss with audit committee whether any recovery has been made by police pertaining to lorry or the inventory (1)
3. Discuss with audit committee the basis underlying their claim that the amount will be immaterial or whether any initial
amount of claim has been worked out. (1)
4. Review cost card for laptop and mobile phone to confirm the cost per unit of a laptop and mobile phone.
5. review the dispatch list as of 1st June, to confirm how much quantity was to be dispatch on June 1st in relation to laptops
and mobile phone
6. Discuss with the warehouse manager any leftover inventory on June 1st at the dispatch location which was not stolen.
7. Watch the CCTV footage to confirm number of boxes which were loaded on to the lorry
8. Reconcile the inventory position as from April 30th to June 1ST to identify any discrepancies in the quantity as per physical
record of warehouse which can be the quantity stolen
Inventory stolen:
Sep Dec 19 Q3
Evaluate the matters which should be considered before your firm accepts the invitation to perform a forensic
investigation for Beyer Co. (8 marks)/ 2 mark per matter= 4 matters
Student note – This is a new client
Recommend the procedures which should be performed in order to quantify the inventory loss; and (6 marks)/ 1
mark per procedure= 6 procedure = CASP
Evaluate the deficiencies in Beyer Co’s internal control system, and explain how they contributed to the fraud,
together with recommendations to prevent such a fraud reoccurring. (6 marks)
STUDENT NOTE
Identify a deficiency + explain the deficiency + how it contributed to the fraud = 2 marks per deficiency
Recommendation - 1 mark per
Explain the difficulties arising for management and for the auditor with respect to discovering fraud. 5 marks
Management
Auditor
Understanding of audit of PI
Audit of PI not FS
Difference is – the subject matter of this audit
What is performance information? – is an information other than financial statements
o Dec 14- Social and environmental performance (private sector)
o Dec 15- University academic performance (public sector)
o Jun17- Hospital information (public sector)
You need to perform procedures to confirm the validity of the performance information
Article:
Difference between performance audit and audit of performance information?
It is worth reiterating the difference between the audit of performance information and performance auditing as
both are likely to occur in the public sector. Candidates are reminded that the audit of performance
information is concerned with the audit of reported performance information against predetermined
objectives. The auditor’s role here is usually to report on the credibility, usefulness and accuracy of the
reported performance. Performance auditing is related to the evaluation of how the public sector body
is utilising resources and often focuses on determining how the public sector body is achieving economy,
efficiency and effectiveness, sometimes referred to as value for money auditing. It is the former that is
the focus of this area of the P7 syllabus.
Audit of performance information is concerned with the audit of reported performance information against
predetermined objectives. The auditor’s role here is usually to report on the credibility, usefulness and
accuracy of the reported performance
E.G.
The management has an objective of giving donation to local charities. During the year 2021 the management give
donations worth $500,000 to local charities.
Performance auditing is related to the evaluation of how the public sector body is utilising resources and often
focuses on determining how the public sector body is achieving economy, efficiency and effectiveness, sometimes
referred to as value for money auditing.
Audit of PI
Reporting on PI (Auditor)
There is no specific format or wording that is prescribed by international regulations for reporting on
public sector performance information, though in some jurisdictions the national regulators may
issue country-specific requirements.
Generally, the auditor will provide a conclusion on whether the public sector entity has
achieved its objectives as shown by the reported performance information and concludes
on the information itself. This conclusion may be in the form of a reasonable assurance
conclusion – ie an opinion is expressed, or may be in the form of a negative assurance conclusion
– ie no opinion is expressed. Essentially, in the absence of any jurisdiction specific requirements,
the auditor will agree the type of conclusion with the public sector organisation and usually its
regulating body.
Student note:
CASP- You need to adapt the list above versus the case
Procedures= TADMSR = case specific